When you go to find something online, do you say I will now conduct an Internet search? Of course not, you say I'll just google it. Google's verb level status in our lives is a measure of its enormous success. It's also at the center of a case the US
government has brought against the company. For years, regulators in Washington have accused tech giants of stifling competition, and in recent months, the US Justice Department and the Federal Trade Commission have launched high profile cases not just against Google but Amazon too.
You know, in a.
Competitive world, if you have a company that's both hiking prices and worsening services for customers, that's the type of situation that should create an opening for rivals to come in to attract business to grow. But it's really Amazon's exclusionary scheme that is keeping that from happening, and what's enabling Amazon to effectively be exploiting its monopoly power with impunity.
Lena Khan, the chair of the FTC. Bloomberg's Leah Nyland is covering both of these cases, and she's here to explain what's at stake for the companies and consumers and why the government is pursuing these antitrust lawsuits.
Now under US LAB you are allowed to be a monopoly and it's considered a good thing, right because you tend to become a monopoly because you have a great product. But under the law you're not allowed to take steps to try and maintain the monopoly.
I'm west Kasova today on the Big Take. I'll just bring.
It Leah, welcome back, Thanks for having me.
So I want to talk to you more about why the Biden administration is taking such a big forward stance against some of the big tech companies. But first, why don't we just jump into the cases themselves, and let's start with Amazon. What exactly is the administration's complaint against Amazon?
Earlier this month, the Federal Trade Commission sued Amazon for anti trust violations. They allege that Amazon is a monopoly and that they have two separate monopolies, one over what they call online marketplace services, which is websites that allow
third party sellers to sell goods to the public. And they also alleged that Amazon is a monopolist in online superstores, which is the retailers who have one stops shopping for all sorts of different goods so you could buy you know, things like electronics, also groceries and books and all sorts of things within there. That is, companies like Amazon, companies like eBay, at sea, things along those sides.
And what exactly is the complaint? What are they saying that Amazon is doing that's wrong?
Yeah, so they allege that Amazon has engaged in a course of conduct that has raised prices. Is for both third party sellers who sell on the website and then also for consumers who are buying products through Amazon's website.
And here's Federal Trade Commission Chair Lina Khan again, she spoke recently to Bloomberg News.
Ultimately, Amazon has pursued them to deprive actual and potential competitors of the ability to gain the scale and momentum needed to effectively compete online. And having achieved and protected its monopoly power, are complaint details how Amazon is now exploiting that monopoly power in ways that harm customers.
There are a number of allegations about various policies that Amazon has imposed on sellers. The two biggest ones are one that Amazon has tied access to its marketplace with the use of its logistics service, which is called fulfilled by Amazon.
So third party sellers.
Instead of keeping the products themselves and then shipping them via the post officer FedEx, they pay Amazon to keep theirs and then ship them out the same as Amazon does with its own and the FTC alleges that Amazon has been giving priority on its website to the sellers who use this logistics service. The other thing that they allege is that Amazon has what is sort of known
as a price parity clause. Essentially, it requires sellers to always sell their products the cheapest on Amazon, and the FTC alleges that that causes prices to rise not only on Amazon, but across the entire web.
So this case is ultimately about competition and competition that has been foregone because of Amazon's unlawful tactics. As the complaint lays out, as a result of that, people are paying higher prices right Consumers are paying more than they otherwise would, small businesses are having to pay a fifty percent Amazon tax right now, and so ultimately the complaint is seeking to restore the lost promise of competition.
You know, Amazon is imposing these other fees on sellers for advertising for this fulfillment service, so they in essence end up raising the price to cover these costs that they have to pay for Amazon.
And so is the government saying that Amazon is a monopoly?
Yes, they say very clearly on the first page, Amazon is a monopolist.
And what is the definition of a monopoly according to the FTC in this case.
Under the US law, there's not like a strict definition of what is a monopoly. You can't say, like, okay, if a company has more than fifty percent market share, they are a monopoly. But they are alleging that they're a monopolist in both this marketplace services category and they also allege that they are a monopolist in this online superstore category.
And it's not just the FTC that is going after them, is that right?
Yes, this complaint there were seventeen state attorneys general who joined on to it, both Democrats and Republicans.
The FDC has been kind of poking around Amazon for several years.
Now.
Why did it decide that this was the thing to go after Because Amazon is huge. They have so many different kinds of businesses that people could accuse them of, you know, like changing the market.
Yeah. Amazon has been under investigation by the FTC now for four years. This investigation started back in twenty nineteen, and the FTC's investigation delved into a lot of aspects of their business, the marketplace. They looked at cloud aws or Amazon Web Services. They also looked at some of the previous acquisitions that Amazon has done in a number of areas. They looked very deeply also at the Prime subscription service, which is partially in this case, but not
as much as people ended up expecting. And they ended up focusing on the marketplace because that I think is you know, it's Amazon's longest running business and it is sort of the center of their dominance if you think about it.
And that's interesting because I think a lot of people would be surprised to think about how important third party sellers are to Amazon because you think, you go to Amazon, you think they're selling you all this stuff. But it really is this collection of thousands and thousands of small businesses that have kind of yoked themselves to Amazon's massive engine.
Yeah, there are millions of sellers on Amazon's marketplace, and over time, Amazon has been gaining more and more revenue from those third party sellers as opposed to selling its own products. The FTC's complaint allegeds that sellers now pay one out of every two dollars they make on Amazon to the company itself for the commission and ads and fulfillment or other types of fees that the company imposes on them, so.
That even though the official Amazon fees are lower, they say that once they all stack up, it adds up to fifty percent of.
That's what the FTC alleges, and I.
Guess sellers themselves would say, Well, sure I could go sell offline or sell someplace else, but if you're not on Amazon, then you're kind of out of the game.
Yeah, that's what a lot of sellers tell us. You know, Amazon is the most important channel, they call it for sales because it's a place that people go when they want to buy something.
I want to ask you about another term that comes up that is, I guess related to monopoly, and that's this anti competitive conduct. How is that different from being a monopoly?
So under US law, being a monopoly is actually not against the law. You are allowed to be a monopoly, and it's considered a good thing, right because you tend to become a monopoly because you have a great product. But under the law you're not allowed to take steps
to try and maintain that monopoly. So what the FTC is saying is, you know, maybe Amazon became a monopoly because it offers great services to consumers, but what it shouldn't have done, and what the FTC alleges it did, is take all these steps to sort of lock in consumers and make sure that nobody else could sort of lure them away with lower prices or different services and
things like that. The case itself just lays out a number of alleged anti competitive conduct that Amazon has engaged in in order to maintain these monopolies.
What is Amazon's say about the FTC cases?
Amazon says that the FTC's case would lead to higher prices for consumers, and they reject the idea that they should be required to show higher prices on their own website. So Amazon says, the way that it decides who wins the bybox, as it's known, so who is the featured seller for a particular product is a complex algorithm, but it takes into account like the price of the product and how quickly it's going to go to a consumer.
Amazon argues that if it's not allowed to show the lowest price, consumers are going to go elsewhere to search for low prices, so they intend.
To vigorously contest the FTC's case.
Antitrust cases take a really long time, so we're probably not looking at a trial until around twenty twenty five or twenty twenty six, but Amazon is definitely gearing up for one already.
After the break. The government's case against Google.
Well, the biggest US antitrust trial gets underway today as the Justice Department takes on tech giant Google.
The government argues that Google, which controls ninety percent of the search market, illegally paid billions of dollars a year to smartphonemakers like Apple to be the default search engine on their devices.
As of last month, Google had a global market share of about ninety two percent, It's nearest competitor being held about three percent.
The only question is is this a serious threat to Google as a whole entity?
Leah. Amazon is only one of the US government's targets against the big tech companies. Also, they're taking a hard look at Google. What exactly is happening with those cases?
Yes, So, the Justice Department and a group of state attorneys general sued Google back in twenty twenty over its conduct related to its search business, and this case went to trial in mid September. It is a ten week
trial that is expected to last through mid November. So the main allegations in that case is that Google has illegally maintained its monopoly over the search market by entering into a variety of contracts with other companies, including Apple and smartphone manufacturers like Samsung, to ensure that it is always placed as the pre selected option or default whenever you access a computer or a mobile phone.
So that Google Search Engine is just the way you search the web automatically.
Yes, so in pretty much every browser except the one owned by Microsoft, and on every smartphone, Google Search Engine is the one that you would automatically search. If you just go to a browser or unless you make some kind of a change, you are always going to be searching via Google. We don't know exactly how much money Google pays for these contracts. The Justice Department said the
number is north of ten billion dollars. But for the past, you know, fifteen years, they have been paying people to ensure that every time you access the web and do a soar, it's through Google.
And the government's case is getting sort of a boost from one of Google's big competitors, Microsoft.
Yes, there have been a number of Microsoft executives who've testified at the trial, including CEO Satynadella, who testified at the beginning of October. He is very interesting because, in addition to being the CEO for a long time, he actually ran Microsoft search business, the bing search engine, so he has a lot of knowledge and deep understanding of Microsoft's ambitions in the search space and how it relates
to the rest of their business. Satunadella, as well as some of the other executives who are at rival search engines, have alleged that these contracts that Google has entered into just block their access from being able to get users because it's very, very difficult to get a user to switch the default search engine. Most people on their phone don't actually realize that there is a default don't know how to change it. So one of Google's defenses is that you can change it. It's easy. It's a debate
whether it's four or five clicks to change it. But what the Justice Department is saying, and what some of the rivals also say, is most people don't even know that that option to change it exists.
And Microsoft is also arguing that they tried to attract business for their search engine called Bing, but they got turned down.
Yeah.
That was what was the most interesting and exciting fact about the Microsoft testimony is we've gotten a look inside a lot of their negotiations with other companies, including Apple. So for years, Microsoft has tried to persuade Apple to change the default on the Safari search engine, which is the search engine on iPhones, mac computers, and iPads, from
Google to Bing. Apple has always used Google since two thousand and three, and they get paid money by Google a share of all of the advertising revenue for that contract. Microsoft has said time and time and again that they should use Being as the search engine in Safari. They even offered to sell Bing to Apple so that Apple
could develop its own search engine and search technology. They didn't say exactly how much money they were offering, but they said it was billions of dollars, and Microsoft was willing to take a multi billion dollar loss in order to make this switch happen because they believe that once they had the number of users that Safari would bring them, they could rapidly improve their search engine Bing and become more of a competitor to Google than they are today. Apple turned them down repeatedly.
It was a pretty big splashing moment when Microsoft CEO took the stand. What did he say?
Yeah, that was a really interesting part of the trial because he made a couple of interesting points. One of them he was talking about how integrated into the average person's life Google has become. He had a quote that said, you wake up in the morning, you brush your teeth, then you go and you search on Google. And the point he was making is it's become a habit that people don't even really think about. It's something incorporated into
your day. The other thing he testified about was their negotiations with Apple and how they have tried very hard to persuade Apple to switch the default in the Safari browser from Google to Bing and have so far not been very successful.
I should add here that Apple has said it chooses to work with Google because Google provides the best search results.
Another Microsoft executive pretty senior at the company, Jonathan Tinter, he's their deal maker, and he testified about how when Microsoft built the Surface duo phone, this was Microsoft's attempt to re enter sort of the smartphone market. They decided
to license the Android operating system from Google. And even though Microsoft wanted to feature its own search engine being on the phone, Google required them to set Google as the default and put a lot of search entry points to Google right there on their own phone.
So what does Google say about all these different allegations coming in them.
They have a couple different defenses. They are expected to be the last several weeks of the trial. They're going to bring a lot of their own executives, including Sandar Pashai, to the stand to testify on behalf of Google. One of their defenses is that it's not that hard to switch, Like, if you don't want to use Google, there are other options consumers can get them with just a few clicks. On a desktop browser, you can actually go in and switch to any other search engine.
On a phone, you can go and you.
Have your choice of five, so you can choose between Google, Yahoo, Bing, Duck, Dot Go, or a German company called Ecosia.
And so Google says all you have to do is go into the settings and you can choose any search engine you want, not theirs.
They say it's really easy to switch if you want to.
They have an oft repeated slogan, competition is just a click away. The other thing they've said is some of these search engines aren't as good as Google's because they haven't invested as much money as Google has.
Is ongoing, Like you say, where do you think it goes from here?
So this is just part one of the trial. This is a judge trial. He is a judge Ami Meta. He will make a decision, probably sometime next year about whether Google violated the law. Then from there we expect that there might be a second trial or a second proceeding of some sort in which he decides what to do about this. So we don't know yet what the Justice Department intends to ask for as the remedy if they win, but they've sort of laid out a couple
of possibilities. One is that they could seek to break up Google. They could seek to require Google to sell off either it's Chrome browser or maybe the Android operating system itself, and keep separate the search business from some
of the other businesses that it has. The other option is what we would call in the antitrust world, a behavior remedy, so forcing Google to change some of the conduct that it has undertaken, and one of the main allegations in this case is that by ensuring that it gets all of the traffic, the billions of searches at day, Google has deprived the other search engines of the oxygen of all of the user queries that they need to
improve their own search engines and succeed. So one thing that the Justice Department could seek is to force Google to share some of that data, share a lot of the it's called click and query data of what users are searching for and what they click on, so that these other search engines could improve their products.
When we come back, why the Biden administration is pushing so hard against big tech Leah, Here we have the Federal Trade Commission and the US Justice Department going after big tech companies generation to go. When the US government went after Microsoft, have pulled down so many resources, and now we have the government going after too at the same time, Why is the Biden administration taking such aim at both of these companies now? And simultaneously.
The Biden administration has made competition and anti trust a key feature of their economic policy. Biden signed in an executive order focused on competition and has really empowered the FTC and the Justice Department, the to anti trust agencies to go after anti competitive conduct that might be hampering the US economy. Both agencies argue that these are tech giants. They're large companies that while they had great products when they originally were unveiled, they have sort of slowed down
their innovations. And also because they are so large, other companies have not really challenged them or moved in to compete against them. So the idea behind these cases is to sort of take on some of the really big players in the market and open up space for smaller companies to come in and maybe create some new innovations.
We mentioned Lena Khan, the head of the FDC, earlier, and so much of this i've at least in the Amazon case, really does seem to be coming from herself.
The actual case against Amazon started back in twenty nineteen during the Trump administration, but when Lena Khan came in in twenty twenty one, she and her staff completely revamped the investigation, focused it more on specific things, including the marketplace and the role of prime And you know, she has spent much of her career thinking about how the digital tech giants have impacted the economy and how the anti trust laws could be reframed to sort of challenge
some of their conduct. So she is really like the vanguard of this movement to take on the tech giants. Lena Khan started thinking about Amazon and some of the anti trust issues inherent in digital technologies when she was a law student at Yale. She wrote this famous paper called Amazon's Anti Trust Paradox that you know for the anti trust world.
It was a blackbuster law.
Student paper because it really rethought how we should think about anti trust in the context of digital markets.
And this is also the first really big case or cases about online activities as opposed to just kind of big tech companies.
Yes, the Microsoft case twenty five years ago focused a little bit on the Internet because it involved the creation of browsers.
But these are the really big cases.
About the online world, and they are likely to set precedence and have important impacts on future cases that the agencies are going to bring related to digital markets.
Leah, as you said, these are hard cases to bring, They take a long time. How do you think they end up.
It's a little hard to say at this point that Justice Department's Google case is the furthest along. We're expecting sort of an initial decision from the judge next year. But you know, because these are really important cases that could lead to breakups of the company, you can bet that the company is going to plan on appealing. So we're not going to see the end of this anytime soon. The best estimates I've heard about Amazon is we're probably looking at a trial in late twenty twenty five or
early twenty twenty six. So we're not going to have a resolution there either in the near term future.
And I suppose if we have a different administration, a different party in the White House, that could also change priorities too.
That is what happened with the Microsoft case. The Bush administration came in in two thousand and one and decided that instead of continuing to seek a breakup of Microsoft, they were going to accept a settlement. And so yes, when there is a change in administration, it can completely change what happens with a case.
Do you think that these two big cases, the government's willingness to go after these companies opens the door to other cases.
That's probably the case.
I mean, there is another one pending against Metaplatforms, Inc.
I e.
The former company formerly known as Facebook. The FTC filed that one in twenty twenty it's still ongoing. We don't have a trial date on that one yet, But the Justice Department has also been looking at conduct by Apple since twenty nineteen, and we haven't gotten a complaint or a resolution to that one as well, So it's entirely possible that what happens in these cases could impact that one as well.
Leah, it's amazing to me you're able to hold all this in your head at the same time. Thanks so much for sharing your reporting.
Thanks so much for having me.
Thanks for listening to us here at The Big Take. It's a daily podcast from Bloomberg and iHeartRadio. For more shows from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, or wherever you listen, and we'd love to hear from you. Email us questions or comments to Big Take at Bloomberg dot net. This episode was produced by our supervising producer, Vicky Bergalina. Our senior producer is Catherine Fink. Raphael m Celia is our engineer. Our original music was composed by
Leo Sidron. I'm west Kasova. We'll be back tomorrow with another Big Take.